I heard permanant life insurance is more expensive, is that true?

This question originates from the client’s assumption that they are purchasing an item that has no intrinsic value. A similar situation can be compared to renting a house versus purchasing one.

When one is renting a house there is no ownership, thus no asset is created other than having a place to reside. When one purchases a house, the owner creates an asset that depending on the growth of the housing market, will rise in value over time. The similar situation can be construed with owning term versus whole life insurance. But even here, there is one major difference. When a client owns term insurance, should the insured pass away while the policy is in force, the beneficiary (ies) receive the contracted death benefit. Some companies offer living benefits with their term policies. So, assets are still created when one purchases a term life insurance policy, which can be accessed when meeting the particular conditions of the contract.

The other issue is understanding the cost difference between rising rent payments over the lifetime of a 30-year mortgage. The renter in most cases will pay a smaller initial dollar amount for renting a similar home than if he/she purchased one. But, as each year passes the rent may increase and eventually exceed the renter’s ability to continue, thus leaving the renter to either abandon the rental and find a smaller home or rent in a more affordable complex/neighborhood. Yet, the one who purchased the home has the same payment over the life of the loan. Additionally, if he/she falls on unfortunate financial circumstances, the home can be borrowed against, or outright sold, leaving the homeowner with essentially 30 years of living for free (minus any maintenance fees and taxes paid).

The case is similar for term vs. whole life insurance. All term policies renew at a higher rate depending on the client’s age at renewal. Sometimes, the rates are so high the client simply chooses to cancel the policy and continue on without any coverage. The premiums of a  whole life policy stay steady over the life of the policy, while simultaneously accumulating a cash value component the client can access throughout the life of the policy. This will also create a source of cash the client can access which enables the client to minimize any loans needed to make any major purchases, such as an automobile, college education, or even a home. The less an individual will have to borrow, the less interest an individual must pay throughout his/her lifetime.

At some point, thanks to the power of tax-free accumulated compound interest, the cash value of the policy can exceed the amount of premiums the client has paid, thereby creating a “net cost advantage” over any term policy over an individual’s lifetime. And it is still passed on to the beneficiary upon the death of the insured. In other words, you will have access to more money than the total amount you invested. The argument can be easily made that the only cost of a whole life policy occurs when you decide not to take advantage of one.
This comparative overview highlights only one aspect of the many benefits of permanent life insurance.  To learn more, use the links below to submit any questions you may have. You can connect to QX Financial directly, the YouTube video, or respond to this post to connect with me directly on LinkedIn. We are looking forward to assisting you.
Note: This is not a solicitation for any type of financial product. This is just an offer to provide additional financially based education.


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